Flash Notes-Japan: Mar 2015 Makes First Trade Surplus Since Jun 2012

Japan finally recorded its first trade surplus in March 2015 after nearly three years of deficits, since June 2012. But the fact is that the trade weakness started much earlier since April 2011 (where most months experienced deficits with the occasional months of minute surpluses between April 2011 and June 2012) right after the Great Tsunami disaster in March 2011 which shut down its nuclear reactors & sky-rocketed Japan’s conventional energy imports.

    Japan’s March exports grew by 8.5%y/y in line with Bloomberg forecasts and a marked improvement from 2.5% in February, largely driven by a 21.3%y/y growth in exports to US while exports to China (+3.9%y/y) and broadly Asia (6.7%) also expanded but at a more moderate pace. Imports contracted more than expected with a 14.5%y/y decline in March (from -3.6%y/y in Feb and lower than the forecast of -12.6%), the fastest pace of contraction since November 2009. The plunge in imports was due to the decline in mineral fuels imports especially crude petroleum which fell by 15.3%y/y in volume (17,718 TKL) but more importantly, the value of crude import fell dramatically by -50.7%y/y to just JPY730.9bn. And even as Japan’s appetite for liquefied natural gas is on the rise, up 1.2%y/y to 8.137 million tonnes, it was more than offset by the decline in prices which drove the value 12.3%y/y lower to JPY620.9bn.

    As a result, Japan recorded a trade surplus of JPY229.3bn in March, much better than market forecast of a JPY44.6bn surplus and from JPY425bn deficit in Feb, the first positive trade outcome since June 2012. Even on an adjusted basis, Japan still etched out a JPY3.3bn surplus (from the JPY 573.2bn deficit in Feb). The positive trade data boosted the Japanese equity sentiment, sending the Nikkei 225 index more than 1% higher to a new 15-year high of 20,123.3 (as of 22 Apr 2015, 11am Singapore time). The turnaround in Japan’s trade prospects is definitely a boost to its 2015 growth outlook (that was recently upgraded by IMF to 1% from 0.6%) and we expect the delay in the 2015 sales tax hike and base effect (from last year’s sales tax hike) to be helpful for y/y improvement for domestic demand in 2015. That said, we are still concerned about persistent domestic consumer weakness and the other risk for weaker growth is the external outlook. If the external environment (especially US) weakens, that may erode Japan’s external demand contribution to GDP growth. We continue to expect Japan’s GDP to grow by 1% in 2015.